Just when Aucklanders thought they’d digested an unpalatable mix of financial measures to fix a big budget deficit, things could get tougher still
Auckland could be facing an even deeper budget hole than the $295m it was predicting when it consulted the public on this year’s budget.
Mayor Wayne Brown fears the numbers might have worsened since that $295m figure was identified in December. Council officials will update forecasts for councillors in a “budget refresh” to private workshops in coming weeks.
Aucklanders have not given Brown and his councillors a particularly clear steer on the proposed budget of a 7 percent general rate rise partly offset by cuts to specific rates, sale of the partly airport shares, $75m more in debt and cuts to local board spending, arts and community groups and a range of parks, transport and other services.
Results of feedback from 41,000 people, released this week, showed marginal support for a degree of spending cuts (17 percent for ‘all’, 24 percent ‘some’ but with higher rates or debt), split views on selling the airport shares (34 percent said ‘no’, 28 percent ‘partial’ and 25 percent ‘yes’ to the full sale), and mixed responses on how much rates should be increased by.
But as those figures were being distilled by officials, the mayor is openly raising the prospect of an even worse hole in the partly finances for the financial year starting on July 1.
Brown says he has “a sneaking suspicion that the $295m hole has got bigger”, and would be surprised if officials come back to councillors saying it has not done so in intervening months.
Chief financial officer Peter Gudsell told him the council was “seeing some pressures out there” including on insurance policy payments and continued inflation and interest rate effects on utility payments.
Brown: “You are generally confirming that it’s not positive news, it’s gone negative.”
Gudsell: “I continue to search for positive news but I’m struggling.”
The city’s chief economist, Gary Blick, said the lower-than-expected consumer price index measure of inflation, at 6.7 percent down from forecasts of 7.1, was mainly a result of lower international influences. Domestically, ‘non-tradeable’ inflation was up. “Pressures are at an all-time high and it is a different story. There’s a risk of high inflation expectations becoming embedded.”
Blick said falling house prices signalled a drop in development activity “so expect a reduction in the volumes of consent activity to the council”. That meant lower revenues from issuing consents for construction.
Brown thanked him for his “bleak assessment of the economy”.
One fortunate thing councillors heard at their monthly meeting was that the partly proposed budget had not included any extra money promised by the Government if the old Three Waters proposals had gone through. Auckland has already committed $127m from an early Three Waters payout but will miss a further $381m that had been dangled by central government.
Gudsell has told councillors that “while the money would have been useful, it would not have solved our ongoing operating gap”.
Brown responded: “Just like it didn’t last time,” repeating his criticism of the council for using the earlier Three Waters payment to prop up its past year’s budget under his predecessor Phil Goff.
If the partly financial hole has widened, it could be less likely that changes to some of the current proposed budget’s measures could be offered to appease opponents and councillors.
Arts and community groups had lobbied hard for relief from steep cuts Brown had proposed, and the city’s 21 local boards hoped the $16m in cuts to their budgets could be reduced – even gaining a tantalising offer from the mayor to scope out the budget impact of reducing their fall to $6m if they agreed to back the airport share sale.
A deeper financial hole would raise the prospect of a higher rate increase for households, reinforce Brown in his insistence that the $2 billion airport share sale is essential to pay down debt, or increase pressure around the council table for greater borrowing to cover the difference without cutting services and community grants.
The renewed budget challenge could reflect some of, but not all, the costs of recovering from the Anniversary Weekend storm and Cyclone Gabrielle in January and February. Longer-term costs will fall into other budget years and the Long Term Plan for the next 10-year period.
And Brown’s fears do not appear to be based on the $1 billion cost blowout on the City Rail Link underground train loop, a type of cost that in the past has been shared 50-50 with the Government.
* On Newsroom economist, from Friday: An in-depth look at the impacts on the city of the mayor’s current budget proposal – from the length of grass to the loss of community, arts and other facilities.